British Steel could have avoided asking UK taxpayers for a £100m rescue if it had saved permits to produce carbon that it instead decided to sell in an ill-judged bet on the EU’s emissions trading scheme. The metal manufacturer cashed in on allowances it was granted under the Brussels scheme aimed at curbing climate change. The scheme requires industries to match each tonne of emissions with an “allowance” or permit. Companies are awarded a certain number for free but many end up with a greater allocation than required when emissions are cut. This is a potential source of cash as permits can be sold on the carbon market. British Steel was allocated more allowances than the total greenhouse gas output from its two main UK plants from 2013 to 2018, according to data seen by the Financial Times. When the company sold off some of its allowances, prices were much lower than current levels after a recent rally to 10-year highs. The sold-off allowances would now be worth £138m.
FT 16th April 2019 read more »
European carbon allowances, the carbon credits that serve as the unit of compliance under the European emissions-trading scheme, have been the world’s top-performing commodity over the past two years. The energy-intensive industries covered by the scheme – power generators, steel companies, cement companies and oil refiners – must submit one allowance for every tonne of CO2 they emit in a given year by the following April 30 or face a €100 a tonne fine. As well as being compliance units, carbon allowances are also tradable financial instruments, and from a 2017 low of €4.38 a tonne they have risen more than 500 per cent in the past 23 months to hit a near 11-year high last week of €27.85 a tonne. One reason for this resurgence has been the emergence of investors as big players alongside the companies with compliance obligations. Investor interest has been propelled by faith in the EU’s determination to ensure that market scarcity pushes prices to levels consistent with its long-term climate targets. After the 2008-09 financial crisis and ensuing recession, a glut of carbon allowances built up and as of year-end 2018 outstanding inventory stood at nearly 100 per cent of annual demand. To put this into the context of a “normal” commodity market, the International Energy Agency’s most recent oil market report shows that OECD countries hold oil stocks equivalent to 16 per cent of annual demand. The huge carbon allowance overhang meant that for many years after 2009 the trading system faced permanent oversupply and low prices but in late 2017 the EU agreed to introduce the market stability reserve (MSR) – in effect a central bank for carbon.
FT 17th April 2019 read more »